South Africa has developed an established, diversified manufacturing base that has shown its resilience and potential to compete in the global economy - providing a locus for stimulating the growth of other activities, such as services, and achieving specific outcomes, such as employment creation and economic empowerment.
The manufacturing sector presents an opportunity to accelerate the country's growth and development in significant ways. Manufacturing in South Africa is dominated by the following industries:
- Agriprocessing.
- Automotive.
- Chemicals.
- ICT and electronics.
- Metals.
- Textiles, clothing and footwear.
Agriprocessing industry
Agriculture contributes four per cent to South Africa's gross domestic product (GDP) and consists largely of cattle and sheep farming, with only 13 per cent of land used for growing crops.
Maize is most widely grown followed by wheat, oats, sugar cane and sunflowers. The government is working to develop small-scale farming in efforts to boost job creation. Citrus and deciduous fruits are exported, as are locally produced wines and flowers.
The agri-food complex (inputs, primary production, processing) contributes approximately R124 billion to South Africa's GDP and employs 451,000 people in the formal sector. Exports of processed agricultural products amounted to R17.2 billion in 2001.
South Africa has a diversity of climates, ranging from semi-arid and dry to sub-tropical. As a result, a diversity of crops, livestock and fish are to be found.
The South African agri-food complex has a number of competitive advantages, making it both an important trading partner and a viable investment destination. A world-class infrastructure, counter-seasonality to Europe, vast biodiversity and marine resources, and competitive input costs make the country a major player on the world's markets.
The establishment of preferential trade agreements, such as the Africa Growth and Opportunity Act (AGOA) for the US market and a free trade agreement with the European Union, confer generous benefits.
The automotive industry
The automotive industry is one of South Africa's most important sectors, with many of the major multinationals using South Africa to source components and assemble vehicles for both the local and international markets.
Despite its distance from some of the major markets Africa, and particularly South Africa, produces high quality products at prices competitive with other automotive manufacturing and assembly centres.
The South African automotive and components industry is growing rapidly and is perfectly placed for investment opportunities. Vehicle manufacturers such as BMW, Ford, Volkswagen, Daimler-Chrysler and Toyota have production plants in the country, while component manufacturers (Arvin Exhust, Bloxwitch, Corning, Senior Flexonics) have established production bases in the country.
The industry is largely located in two provinces, the Eastern Cape (coastal) and Gauteng (inland). Companies with production plants in South Africa are placed to take advantage of the low production costs, coupled with access to new markets as a result of trade agreements with the European Union and the Southern African Development Community free trade area. Opportunities also lie in the production of materials (automotive steel and components).
South Africa's aim is to become an automotive investment destination of choice. Modernisation and upgrading of key elements in the automotive industry are required to keep pace to achieve international competitiveness.
Interest rates are currently at historic low levels, reducing the cost of investments. It is significant to note that most major multinational vehicle manufacturers are currently represented in SA, which means that international developments also impact on the country.
The outlook for the vehicle industry is bright in terms of both exports and the domestic market. A key challenge will be to raise local content, particularly in the vehicles now being exported in large volumes.
Chemicals industry
The chemical industry has been shaped by the political and regulatory environment which created a philosophy of isolationism and protectionism during the apartheid years. This tended to foster an inward approach and a focus on import replacement in the local market. It also encouraged the building of small-scale plants with capacities geared to local demand, which tended to be uneconomic.
Through isolation of the industry from international competition and high raw material prices as a result of import tariffs, locally processed goods have generally been less than competitive in export markets. Now that South Africa is once more fully part of the global community, South African chemical companies are focusing on the need to be internationally competitive and the industry is reshaping itself accordingly.
Two noticeable traits characterise the South African chemical sector. Firstly, while its upstream sector is concentrated and well developed, the downstream sector - although diverse - remains underdeveloped. Secondly, the synthetic coal and natural gas-based liquid fuels and petrochemicals industry is prominent, with South Africa being world leader in coal-based synthesis and gas-to-liquids (GTL) technologies.
South Africa's chemical industry is of substantial economic significance to the country, contributing around 5 per cent to the gross domestic product (GDP) and approximately 25 per cent of its manufacturing sales.
The industry is the largest of its kind in Africa. It is highly complex and widely diversified, with end products often being composed of a number of chemicals which have been combined in some way to provide the required properties and characteristics.
The primary and secondary sectors are dominated by Sasol (through Sasol Chemical Industries and Sasol Polymers), AECI and Dow Sentrachem. These companies have recently diversified and expanded their interests in tertiary products, especially those with export potential.
ICT and electronics industries
The South African information technology (IT) industry growth outstrips the world average. The country's established and sophisticated indigenous information and communications technology (ICT) and electronics sector comprises more than
3,000 companies and was ranked 22nd in 2001 in terms of total worldwide IT spend.
It has ready access to cutting edge technologies, equipment and skills and has the advantage of access to the rapid expansion of telecommunications and IT throughout the African continent. South African software developers are recognised as world leaders in innovation, production and cost efficiency backed by an excellent local infrastructure.
This sector can be divided into three main sub-sectors: telecommunications, electronics and information technology.
The telecommunications industry is thriving, contributing more than seven per cent to South Africa's gross domestic product (GDP). With approximately 5.5mn installed fixed-line telephones, South Africa is ranked 23rd in telecommunications development in the world and represents more than 30 per cent of the total lines installed in South Africa.
Telkom, the sole fixed-line operator in South Africa, is a key player in a US$630mn optical fibre undersea cable project that will cater for Africa's growing telecommunications needs for the next 25 years. Currently, a bidding process is under way for the country's second fixed-line operator (SNO). The SNO is set to be named at the end of the 2003 financial year.
Growing at a rate of 50 per cent per year and fourth fastest growing cellphone market in the world, the South African GSM cellphone market has three operators: Vodacom, MTN and Cell-C. Some of the world's leading telecommunication brands like Siemens, Alcatel, SBC Communications, Telecom Malaysia, Cell C and Vodaphone have made significant investments in the country.
The South African electronics industry has repeatedly proved itself in terms of world-class innovation and production. The industry is characterised by a handful of generalist companies with strong capabilities in professional electronics, while small to medium companies specialise in security systems and electricity pre-payment meters.
Investment opportunities lie in the development of access control systems and security equipment, automotive electronic subsystems, systems and software development in the banking and financial services sector, silicon processing for fiber optics, integrated circuits and solar cells. There are also significant opportunities for the export of hardware and associated services as well as software and peripherals.
Metals industry
South Africa's large, well-developed metals industry, with vast natural resources and a supportive infrastructure, represents roughly a third of all South Africa's manufacturing.
It comprises basic iron ore and steel, basic non-ferrous metals and metal products. The iron and steel basic industries involve the manufacture of primary iron and steel products from smelting to semi-finished stages.
Ranked the world's 19th largest steel producing country in 2001, South Africa is the largest steel producer in Africa (almost 60 per cent of Africa's total production).
Primary steel products and semi-finished products include billets, blooms, slabs, forgings, reinforcing bars, railway track material, wire rod, seamless tubes and plates.
South Africa is a net exporter, ranked 10th in the world, to more than 100 countries. Approximately 500,000 tons of ferrous-scrap were exported by metal recyclers in 2001.
Imports accounted for only 5.8 per cent of total domestic consumption of primary steel products in 2001. Sales to the local market increased by more than six per cent during 2001 when compared with 2000.
Iscor is South Africa's largest steel producer. Other industry players include Scaw Metals, Cape Gate, Columbus Stainless Steel, Highveld Steel and Vanadium and Cisco.
South Africa's non-ferrous metal industries comprise aluminium and other metals (including copper, brass, lead, zinc and tin). Aluminium is the largest sector but, as SA has no commercially exploitable deposits, feedstock is imported. South Africa is ranked eighth in world production of aluminium. Key players include Billiton (with smelters in Richards Bay) and Hulett Aluminium.
Other non-ferrous metals are small in relation, but are still important for exports and foreign exchange earnings. Although the country's copper, brass and bronze industries have declined, it is hoped that new mining and reclamation technologies will allow exploitation of previously unviable deposits.
The international and local steel industry has changed dramatically over the past two years. Several steel companies have fallen away and protectionism has increased.
To survive in these harsh conditions, the South African primary steel industry has taken major steps to become more efficient and competitive. Many of the local steelworks have engaged in ongoing restructuring processes and productivity improvements.
For example, Iscor's steel and mining divisions were unbundled towards the end of 2001 and Saldanha Steel was 100 per cent integrated into Iscor early in 2002.
Textiles, clothing and footwear industry
The South African textile and clothing industry has a powerful vision. It aims to use all the natural, human and technological resources at its disposal to make South Africa the preferred domestic and international supplier of South African manufactured textiles and clothing.
Though the textile and apparel industry is small, it is well placed to make this vision a reality.
Due to technological developments, local textile production has evolved into a capital-intensive industry, producing synthetic fibres in ever-increasing proportions. The apparel industry has also undergone significant technological change and has benefited from the country's sophisticated transport and communications infrastructure.
The South African market demand increasingly reflects the sophistication of First World markets and the local clothing and textile industry has grown accordingly to offer the full range of services from natural and synthetic fibre production to non-wovens, spinning, weaving, tufting, knitting, dyeing and finishing.
Since 1994, about US$900mn has been spent on modernising and upgrading the industry, making it efficient, internationally competitive, and ready to become a major force in the world market.
Exports account for R1.4bn for apparel and R2.5bn for textiles, mostly to the US and European markets. Exports to the US increased by a dramatic 62 per cent in 2001, driven primarily by the benefits offered under the Africa Growth and Opportunity Act (AGOA) which provides for duty-free imports of apparel produced in South Africa.
